Strategists look for trends in business environment to develop successful strategies and gain advantage in their markets. The new year brings with it a number of trends to watch out for and factor in for business planning by India Inc
2011 has been heralded as the year of India. Foreign investment is predicted to increase and the Elephant economy is said to be on the right path to overtake China in terms of GDP growth within the next few years.
Business trends play an important role in identifying emerging opportunities and keeping a tab on potential threats in the external environment.
Our experts have been tracking business trends along 2010 affecting businesses in India, and have identified 50 or so amongst which we have selected the top 11 to watch out for in 2011. To do so, we rated trends on following five criteria:
- Relevance to the business world
- Likelihood of occurrence in 2011
- Continuity beyond 2011
- Breadth of impact across economicsectors
- Relevance in terms of geography (India vs. the World: 3G is officiallybeing launched in India this year,thus has scored highly)
Each criterion held the same weight inranking the trends.
3G - The next growth driver
After years of bickering between ministries and the telecom industry, 15 telecom companies bid for licenses in 22 Circles, the 3G auction finally reeled in Rs. 677.2 billion ($14.6 billion) in revenue for the Government, almost twice the predicted amount.
One of the factors that set India’s telecom market apart is the ferocity of the tariff wars that have raged in the past, resulting in the cheapest call rates across the globe ($0.01/min. or 2 Paise/second). If 3G services follow that path even to a slight extent, the effects of the spread of 3G network will be huge.
Kunal Bajaj (of BDA Connect) believes that the current 40 Million users equipped with 3G phones will rise to 60 Million within next 2 years, which added to 29 Million laptop users will make for a market of $15 Billion by 2013 for 3G services.
The arrival of 3G technology as well as the emergence and growing popularity of scores of websites based on user generated content (facebook, youtube, twitter, ...) will create a virtuous cycle: both trends will feed off each other. Enterprises will gain access to potential customers which were not within reach so far.
Web 2.0 - Creating communities online
India is poised for something of an internet revolution. As the variety of mediums (Wifi spots, 3G USB Keys, mobiles, ...) for Internet access increase, the ease with which consumers will be able to log on to the Net will rise ever so high. At the same time, social networks and other user generated content oriented websites are becoming more popular and numerous.
In July 2010, Comscore revealed, more than 33 million Internet users in India visited social networking sites. This represents 84% of all users and an increase of 43% year on year.
All the while, e-commerce and m-commerce are on the verge of becoming a major distribution channel. As online purchases spread from the current online ticketing (IRCTC, MakeMyTrip, ...) to consumer goods and packages, digital advertising will explode; triggering a demand for relevant and targeted audiences which social networks will be happy to provide.
Enterprises will also be able to benefit from Enterprise Social Networking as well as the emergence of Cloudcomputing facilities.
Made for India - Made by the World
Western brands are launching new products or even new brands dedicated to India and other emerging markets. As current economic trends tend to show, the consumption epicentre is slowly shifting from the West to the East. In addition, Western brands still enjoy a perception of quality and bycustomising products for local population, they will gain a double benefit of a better fit (i.e. skinnier Levis jeans) as well as answering the cultural need for recognition of emerging markets.
The traditional four Ps will be replaced by the four As: affordability, awareness availability and acceptability for local markets. Indeed, companies are payingmore and more attention to the “Rs.5 strategy”, which sacrifices the size of
unitary sales for a much larger market penetration.
- Nokia had earlier launched a basic handset with a torch (large parts of rural India don't have electricity) and an alarm clock.
- Coca cola and Pepsi sell 200 ml cans at Rs.5
- Chik shampoo created the jasmine variant for local women.
- TVS mopeds created functional value in tune with the 'all purpose' vehicle
culture existing in several parts of the non-metro areas.
- Philips designed gas stoves and lanterns that will be useful to such markets, as current stoves are fuelledwith anything and everything and often present health risks.
- Tide launch washing powder sachets at Rs.1
These strategies, which completely challenge the norm, are becoming the standard in many parts of India.
Inflation - Raising its head, again
The Indian government has been trying to keep inflation at bay; however, this has proved to be an elusive goal. It reached a high point of 9.7% in October 2010, which doesn’t bode well for the central bank’s forecast of 5.5% for March 2011. Inflation is likely to be closer to 7% due to rising food prices.
According to CARE Ratings,food inflation itself is at its worst, having reached a 23 week-high of 18.32% on December 25th, 2010.
The main problems are structural. Food producers and suppliers are finding it impossible to meet the demand from the increasing number of consumers. This is notably caused by land restrictions, archaic retail networks and bad infrastructure.
Subir Gokarn, deputy governor of the Central bank, calculated that a 39% rise in income per person in the previous five years might have engendered an extra 220 million regular consumers of milk, eggs, meat and fish. As the economist points out, suppliers simply haven’t been able to keep up with the extra demand.
India’s current account deficit has grown to 4.3% of GDP in the quarter ending September 2010. Though this hasn’t seemed to affect India’s growth, Goldman Sachs points out that “funding a growing deficit from short-term capital flows” presents “the biggest risk to India’s growth”.
As a result, demand for other consumer goods may be pushed downwards as households end up spending a higher proportionate amount of their disposable income on food.
The Government will have a tough challenge to tackle this year, as no quick fixes will suffice to shackle the rising prices.
Uncertainty - Never to far
The trend of increasing business uncertainty in India is notably due to the integration of the Indian economy with the rest of the world. In fact, the financial crisis also affected the Indian economy despite its resilient growth.
In addition, protectionist measures recently announced by Barack Obama, with fiscal exemption for firms creating employment in the US and encouraging less subcontracting abroad, might affect the IT sector in India.
Moreover, proliferation of players and products in the Indian market, consumerbehaviour and preferences change ever faster. As a result, it is becoming harder forfirms to predict the future and develop long - term and even medium - term
Political issues such as the terrorist threats and other potentially vigourous separatistmovements, and farming rebellion against industrial projects (Nano project in Singur,for instance) will likely add to the general turmoil.
India is on the path of becoming increasingly business friendly, however problems of old won’t go away by being ignored and will eventually have to be resolved if it is to take on new challenges.
Rising Rural - Hard to ignore
Rural India has become a big market. Many businesses are now developing new marketing strategies to target rural consumers who have seen an increase in their purchasing power, notably due to the rise of procurement prices and less-rain dependant activities such as poultry or fisheries, the switch to new crops andtechnology, government schemes like NREGS and raised wages and benefits from loan waivers for farmers. The media has provided a window into urban
lifestyles creating aspirations for similar goods and services in rural India. Assuch, companies have identified a latent demand which promises good prospects.
So, rural India, a large and untapped market of more than 800 million people, will prove to be a key growth driver, especially in automobile, healthcare, telecom, retail, real estate, banking and insurance sector.
For example, LG Electronics developed the customised TV Sampoorna, which is cheap and capable of picking up low-intensity signals, for the rural markets. Dabur decided to go rural with Odomos Oil at an affordable price after identifying the largely untapped mosquito repellent market in rural India.
Urbanomics-The emerging segments
Three major emerging segments: kids, the youth and the urban Indian women are the new drivers of the urban consumer market.
Kids are increasingly influencing their parents in purchase decisions, even forcars, consumer durables or electronics. Exposed to the outside world throughthe media, kids do not hesitate to voice their preferences to their parents when it comes to decisions that will affect them. In addition, thanks to their familiarity with product features, kids are often seen as in the know by their parents who will trust their judgement.
Indeed, companies tend to keep in mind the 400 million Indians under 15 yearsof age when designing and packaging products. For instance, the Kissan range of jams in a jar offers a free “Tom and Jerry smacker” in it.
Businesses also try to build relationships with children when they are young such as L’Oreal which created a new line called Garnier Kids aimed at creating brand loyalty.
Increasing brand awareness and purchasing power among the young urban Indians also make them a main target. In their mid-twenties, they spend a lot of time outside home and are not used to saving money. They don’t hesitate to spend on expensive globalbrands and often want two and four-wheelers.
The growing independence of urban women has led them to spend more and more time out of home and pay an increasing attention to their appearance. As a result, product categories targeting the urban women have increased a lot, for instance in jewellery, cosmetics, apparel, mobile phones or computers.
These consumer segments represent tremendous growth opportunities for India Inc.
Big retail - Coming soon near you
Long-term growth has been predicted for the estimated $400 billion Indian retail market, the fifth largest in the world. “Mom and Pop outlets” are now facing competition from new medium sized players and major Indian retailers such as Pantaloon which launched India’s first hypermarket “Big Bazaar” in 2001.
“Big retail” in India is supported by strong drivers such as increasing numbers of families with double incomes, urbanisation leading to higher customer density areas, improvement in the transportation infrastructure, increasing automobile penetration and
use of credit cards.
The organised retail sector hit a rough patch in 2008 when Indian economy was impacted by global financial crisis; its fortunes have changed since then. Not only the costs, especially rentals, have become more reasonable but the
companies have also rationalised their strategies based on market feedback.
No wonder, the companies have cut down their losses in 2009-10 compared to a year ago and have clocked high double digit growth in their sales. There is going to be more action in 2011 with further penetration of organised retail at an increased pace.
Health is Wealth
Health and wellness awareness is emerging amongst Indians who look after their body more and more, especially in urban areas.
In consequence, heal th concerns typically focus on the excessive use of pesticides in agriculture, as well as obesity, which is being increasingly perceived as a major problem in India, notably because it is directly linked to heart diseases and diabetes. A study by OECD, recently published in the Lancet, revealed that India's overweight rates increased by 20% between 1998 and 2005. Currently, almost 1 in 5 men and over 1 in 6 women are overweight.
Thanks to the rising concerns for health and wellness in India, the size of fitness
Market , notable comprising food supplements, low fat and sugar free food, alternative therapies and health clubs is growing. Progressively more aware of the benefits associated with various ingredients, more and more Indians are checking out nutritional information before purchasing food or beverage. As a result, companies have started to target the diet conscious by launching healthy products, such as
Horlicks with the brand “Foodles” in the noodle market. Long-term growth is predicted for the fitness market in India.
E for Environment - The greening drive
Public demand for a cleaner and healthier environment is increasing in India. Rapid economic growth and high population density are putting significant pressure on natural resources.
India is on a thorny path with its energy-intensive model and resource-gobbling production and consumption. Also, an increasing number of players have decided to take action to protect the environment.
The ministry of environment is leading India’s climate change and environment policies and wants laws to be respected. For example, the mining group Vedanta’s project to extract bauxite in Orissa at the cost of environment and the rights of local tribes was rejected by the ministry.
Environmental protection is gaining in importance in India. Clean technology and pollution controls cover more and more firms. On March 9th, 2010, India formally agreed to join the international climate change agreement reached in Copenhagen.
Moreover, in the Union Budget 2010-11, the government announced the setting up of the National Clean Energy Fund (NCEF) for funding research and innovative projects in clean technologies.
Led by its ministry, India is seemingly getting to grips with the world’s greening ideals.
M & A - Urge to Merge
To satisfy their growth ambitions, India’s cash happy companies will look for acquisitions in India as well as overseas.
If one is to judge by this year’s performances, deal volumes have exploded, tripling from US$21.3 billion last year to US$67.2 billion for 2010, just missing pre-crisis levels of $US68 billion in 2007, according to Reuters.
Overseas deals included for example Bharti airtel’s acquisition of the African telecom assets of Zain for US$10.7 billion, or the acquisition of Grosvenor House by Sahara for US$757 million. There will indeed be room for more inorganic growth in 2011.
Outbound M&A will be vigourously driven by natural resources sectors given Indian player’s “huge requirement to buy raw material security” as well as IT.
In India itself, sectors with busy M&A activity will include healthcare, consumer and telecom.
Indeed, "one of the key themes sectorally is telecoms consolidation”, which given the cash that was splashed out for 3G licences and the anticipated M & A guidelines changes will be interesting, as Frank Hancock (MD Barclays India) observed.
Bankers are expecting M&A levels in 2011 to surpass this year’s.
The year 2011 promises to be a busy one. All of our trends point to an increase in activity with a bucket full of challenges to take on.
Will India really overtake China in terms of GDP growth? This author, for one, will look forward to seeing if the elephant can pull this dance off